Budgeting Basics

Having debt hang over your head can be overwhelming.  It can feel like your financial stability is spiraling out of control.  However, the best way to get a grasp on your financial situation and keep it grounded is to establish a realistic budget, and stick to it.

Some people hear the word “budget,” and they already feel constrained.  But, a budget is not meant to hurt you; it’s meant to help.  A budget merely helps you stay organized.  Think of it like a closet organizer. Sure it takes some time to set up and get used to.  But once it’s there, you no longer have to stress about a lost pair of shoes.  Everything is in place and easy for you to access.  You’d be surprised as to what a relief it can be to know exactly where your money goes.  Here are a few tips to help you set up your budget.

Know Your Income

Whether you work a salary or hourly job, you should know exactly how much you’re pulling in on a monthly basis.  Once you record your income from all sources, you know how much you’re working with per month.

Fixed Expenses

You’re going to have a set of fixed expenses every month—mortgage/rent, car payments, insurance, etc. These are costs that you can automatically deduct from your gross income in order to know exactly how much you have for living expenses.

Variable Expenses

These tend to be your day-to-day expenses which, naturally, can vary from month to month.  Use a 30-day trial period to record every penny you spend on things outside of your fixed expenses.  This should include groceries, clothing, entertainment, etc.

Analyze and Prioritize

After your trial period, take a look at your spending habits.  Of course, you need to pay your fixed expenses to stay out of debt.  But, after that, see what variable expenses are needed and which ones aren’t.  You probably need to make a few trips to the grocery store, but maybe you don’t need to buy a $5 cup of coffee every morning.  The main thing is to organize.  Once you’re organized you’ll find yourself with more change in your pocket and less stress.